Business

Hard sell

Released at: 22:35, 17/10/2015

With insufficient legal oversight, a number of multi-level marketing companies are simply fronts for pyramid schemes or other dubious practices.

by Le Diem

Hailing from a remote village in the northern province of Thai Binh, after entering the Vietnam University of Commerce Ms. Ngoc Lan tried to find a part-time job to earn some money to cover her living costs in Hanoi as her family found it hard to provide her with enough support. Introduced by a classmate to the Thien Ngoc Minh Uy (TNMU) Co., a multi-level marketing company, she borrowed some money to buy an Ozone Food Processor for $320 to enter the first level of the company as a sales employee.

The company commits that sales employees will receive $545 after one year and nearly $54,500 after five years without having to sell anything. Ms. Lan, however, was then told to persuade her family members to join the company to receive similar benefits or even better if they purchased more products. “If I could buy 17 products, costing around VND120 million ($5,450), I would receive VND15 million ($680) after one month, VND400 million ($18,000) after one year, and VND2 billion ($100,000) after five years, under the company’s program,” she said. “But neither my family nor people I know had that sort of money.”

Meanwhile, Ms. Hong Minh, a 45-year-old freelancer in the northern province of Thanh Hoa, bought functional food products from Vietnet, another multi-level marketing company. For an outlay of around VND8.5 million ($390) for each product, she would receive a total of VND300 million ($13,600) and a Honda SH motorbike 125i or 150i worth VND66-80 million ($3,000-3,600) after three to five years.

Besides buying more products to increase the level to get more benefits in the future, there are other ways to earn a lot of money without investing more. Ms. Lan and Ms. Minh are just two of more than a million people joining some 60 multi-level marketing companies in Vietnam, according to the Ministry of Industry and Trade.

After buying a product at a minimum price to become a member of the organization, while waiting for the benefits the new sales employees are encouraged to not sell products but to persuade others to join. Each new member receives a commission from their introductions or if they are connected to subsequent introductions, which differ between companies and range from 10 to 70 per cent. From one person the network develops as a pyramid, and the bigger the pyramid you create the more commissions you receive.

That’s what Mr. Tuan Anh, a 32-year-old construction engineer, said about his part-time work on the sales staff of World - Nets Vietnam. He was convinced right from the first time he visited their office. “There were a lot of people of different ages and backgrounds joining the network, such as teachers, doctors, and businesspeople,” he said. “I saw some of them receiving commissions in the millions of VND.” He added that he had attended talks given by senior members of the company, who showed those gathered their own huge pyramids that earned them hundreds of millions of VND (or thousands of dollars) every month. “Real people, real money,” he said. “Everything seemed real so any doubts I had were dispelled. If they were defrauding people, how could they still exist?”

Ugly truth

In many cases, however, all is not as it seems. According to Professor Truong Dinh Chien, Head of the Marketing Department at the National Economics University, multi-level marketing, which has achieved great success in developed countries, was “transformed” after appearing in Vietnam.

Real multi-level marketing should benefit both enterprises and consumers, he said. Enterprises can save a lot on overheads from selling and marketing their products and boost their image by word-of-mouth. Meanwhile, consumers should have the chance to buy good products and services at a cheaper price than at retailers, and perhaps find an extra job as a sales employee of the company.

Products and services offered by multi-level marketing organizations must therefore be lower than those of other distributors, and their origin and quality are required to be clear. The commission given to sales employees must also be lower than the discount received from manufacturers in order for them to turn a profit.

In Vietnam, however, the model is applied differently, with companies not earning profits from sales of products and services and consumers only having a vague understanding about origin, quality, and price.

“All that is important is the number of new participants, which is the main source of revenue as they are required to buy a product or invest a certain amount of money, with promises of higher commissions if they invest more or find more participants,” Professor Chien said. “This differs from the positive goal of multi-level marketing and results in companies taking advantage of people’s greed to cheat them.”

Side effects

Some people claim to have made an honest profit from multi-level marketing, but many others are reporting problems with the products they buy and that they have lost or are losing their investment.

While Ms. Minh, for example, stopped using the functional food she purchased after becoming sick, she still receives a commission every month after investing for three months. But she is concerned about one of her friends, who invested in the same manner with another multi-level marketing company and only received one-third of what he spent before the company shut down. Friends he introduced to the company also lost the money they had invested.

Ms. Lan later discovered that the Ozone Food Processor could be purchased elsewhere for $90, not the $320 she paid. After introducing two friends to the network, she received VND1.5 million ($68) in commission but then nothing more. When she asked she was told to find more members or she would not get her investment back under the rules of the company.
A similar thing happened to Mr. Anh. After unsuccessfully trying to persuade others to join the company he wanted to get his money back, but the only way to do so was to get a commission from introducing others.

While they could all see it was sensible to quit, they stayed on in the hope of at least getting back their original investment. But their problems with their companies were also being experienced by those they introduced, who by and large were family and friends. A lot of relationships have been strained by dishonest companies in multi-level market, according to Professor Chien. Worse still, some of those who failed to introduce new members to the company not only lost their original investment but also racked up debts. It’s been reported that some people have committed suicide after becoming embroiled in such schemes.

According to lawyer Dang Van Cuong, Vietnam’s laws on multi-level marketing are still loose. If there is no clear evidence of intentional fraud to acquire the property of others, dishonest companies may only be subject to small administrative fines.

More and more multi-level marketing companies have been found to have a dubious side in recent times and awareness is finally increasing. In response, though, many of these companies have spread their tentacles to the countryside and remote areas, targeting the poor and uneducated who lack knowledge about multi-level marketing but are attracted by the promises made, according to Mr. Cuong. These new victims, who are only familiar with fields of rice or vegetables or orchards of fruit, are easily persuaded by the hope of future returns.

While many multi-level marketing companies are indeed the genuine article, too many take advantage of legal loopholes to cheat people who dream of wealth but perhaps should know better.